24 March 2016

Zimbabwe: Cabinet Approves Company Closures

Photo: The Herald
Patrick Zhuwao.

GOVERNMENT yesterday ordered the cancellation of operating licences of companies that have not complied with the country's controversial indigenisation laws after a unanimous cabinet resolution on Tuesday.

Youth, Indigenisation and Economic Empowerment minister Patrick Zhuwao announced cabinet had resolved to enforce the Indigenisation and Economic Empowerment Act Chapter 14:33 which provides for the cancellation of non-compliant companies, operating licences across all sectors of the economy.

Zhuwao said President Robert Mugabe's cabinet had ordered that ministers from next month invoke section 5 of the Indigenisation and Economic Empowerment Act against all non-compliant businesses.

"On Tuesday 22 March 2016 cabinet unanimously passed a resolution directing that from 1 April 2016 all line ministries proceed to issues orders to licensing authority to cancel licences of non-compliant business within their respective sectors of the economy," Zhuwao said yesterday.

Zhuwao said laws must be respected.

"Well, laws must be adhered to. We must never breed lawlessness as a nation. The failure to adhere to the laws of our land must attract immediate consequences that must be severe and dire enough to ensure that the law is respected and adhered to," he said.

"It is re assuring therefore to law abiding Zimbabweans whose aspiration is that they must own their economy through indigenisation and economic empowerment that cabinet has boldly spoken against such lawlessness that has continued to deprive the indigenous majority ownership of their economy."

Section 5 of the Indigenisation and Economic Empowerment Act empowers Zhuwao to issue a written order barring licensing authorities to issue licenses, register and give rights to non-compliant companies.

Section 5 provides that: "(2) Subject to this Section and Section 20, the minister may issue a written order to the licencing authority of any non-compliant business, ordering that the licensing authority concerned decline to renew the licence, registration or other authority to operate of the business concerned, or, where the licence, registration or other authority concerned is granted for an indefinite term, ordering that the licence, registration or other authority concerned be terminated no later than six months from the date when the Minister issued the order to the licensing authority concerned."

Zhuwao said the decision was in line with Mugabe's pronouncement at the ruling Zanu Pf party annual conference last December where the aged leader said resistance to indigenisation would come to an end this year.

Mugabe said: "There are companies in this country that still refuse to accept our empowerment policy within the mining sector. But certainly, come January 2016, that stubbornness and resistance should end in 2015. (In) 2016, we will not accept a company which refuses and rejects our policy of indigenisation and empowerment in the manner we inscribed it."

Zhuwao said line ministers must issue an order to a licensing authority to cancel licences of non-compliant firms and notify affected companies in writing.

However, companies may show just cause why the licence should not be cancelled.

Line ministries have also been ordered to present a comprehensive list of all companies that are licenced to operate in their sectors within a week from 22 March for purposes of verification.

"I believe that the measures directed by cabinet shall remedy the long standing disregard for the indigenisation and economic empowerment Act {chapter 14:33} by non-compliant businesses. It is only such contemptuous business that must face the full force of the law," Zhuwao said.

This comes after Zhuwao told state-controlled weekly, the Sunday Mail last weekend that foreign companies resisting Zimbabwe's indigenisation programme would not be required to pay non-compliance (empowerment) levies, but would be forced to shut down come April 1, 2016.

He said only 50 established firms had submitted their indigenisation plans to the Zimbabwe Investment Authority.

The Indigenisation and Economic Empowerment Act compels foreigners to dispose of 51% equity stakes to indigenous Zimbabweans.

The order to cancel licences of non-compliant companies comes at a time local firms are either downsizing or closing shop due to the harsh operating environment obtaining in the country.

He defended his suicidal approach, saying non-compliant companies were operating illegally.

"The message we should send investors is that Zimbabwe believes in the rule of law. Companies that operate illegally must stop operating. This is not policy inconsistency; I have always said that I am proposing the levy to ensure compliance. The levy was never imposed. It was a proposal, and a proposal -- by its very nature -- is open to discussion," he said.

Low local demand, competition from imports, high cost of doing business , capital constrains and antiquated machinery continue to continue to act as an albatross affecting industry's viability.

Industry's capacity utilisation plunged from 36,5% in 2014 to 34,3% in 2015 , according to the latest manufacturing sector survey.

Zhuwao announcement comes barely a month after Mines minister Walter Chidhakwa ordered six companies operating in Chiadzwa to cease operations for defying a directive to merge into a single company called the Zimbabwe Consolidated Diamond Company (ZCDC).

Chidhakwa's directive follows the diamond miners' rejection of the initial amalgamation plan, which gave birth to ZCDC and left government owning a non-dilutable 50% stake and the balance shared among the existing miners.

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